3m Telecom

3M Telecom Systems Division

Major Issue: What strategy should 3M Telecom Systems Division follow in order to stimulate their sales?

Alternative 1: Trying to drive the market by achieving major cost reduction

Advantages:

* Greater contribution margin due to reduced variable cost.

* Possible increase in demand due to availability of price reduction.

* Greater chance to be an industry standard, therefore dominate the market.

* Past experience on cable splicers, considerable history of the company will ease cost reduction.

* Fiber optic’s tendancy to dominate the market since it’s much faster than current copper wires.

Disadvantages:

* Extra research and development cost needed for cost reduction.

* Uncertainty of market, electronical enhancements for copper wires would still beat fiber market.

Alternative 2: Partner with a major end user such as NTT

Advantages:

* Partnering would reduce the risk of failing in an new emerging market.

* Easier access to different markets internationally.

Disadvantages:

* It will keep 3M telecom division dependent on another firm, decision mechanism will be weakened.

* Since this end user of fiber will probably be outside of US, international partnership will significantly increase costs due to taxes and freight costs.

Alternative 3: Being satisfied with current small but profitable market (do nothing)

Advantages:

* Easy to implement.

* No extra cost.

Disadvantage:

* Does not provide desired growth. Therefore contradicts with the major issue.

Recommendation

I think the research and development cost to reduce variable cost of Fibrlok Splice will definitely pay off if implemented successfully. Since 3M already has 30% of the market, they can easily take advantage of their competitive power. For a rough estimation, 3M sold

* 5 million*30%=1.5 million units.

* 50 units sell for $16.

* $16/50=$0.32 per splice.

* 1.5 million*0.32 = $480.000 sales...